Shippers Facing Rate Hikes As Box Supplies Dwindle

Container freight rates are expected to rise sharply in the next two months as a severe shortage of boxes leave shippers and the lines battling to cope with robust market demand for China exports.
The equipment shortage is spread across all major trades and is beginning to bite even as lines deploy extra capacity to accommodate fast rising volumes in the build-up to the peak season.
The unexpected headache may be frustrating carries, but it is shipper who will end up paying the price.
“Shipping line rates are set to rocket during the peak season as shippers grapple with the equipment issue – interesting times lie ahead for certain,” a liner executive told.
The huge increase in market demand on trades such as Asia-North Europe, Asia-Mediterranean and Asia-US West Coast had led to the launching and resumption of new and suspended services that have already pushed up weekly capacity by a staggering 85,000-plus TEUs this year.
According to some senior shipping line executives, China’s export volumes were up well over 20 percent during the first half of this year. An industry that was flat during the last quarter of 2009 has shown a surprising rebound to meet market demand in Europe and the US.
“We are experiencing a hugely unexpected upturn in China export demand, but we don’t have the container equipment now to cope with that demand,” said the liner executive.
The shortage of containers stems from the worst downturn in shipping history. During the recession, China’s container production plummeted from 3.2 million TEUs in 2008 to a mere 200,000 TEUs last year. Although some analysts believe 2010 production will climb back to a million boxes and to two million next year, the production increases will be too late to cater for the 2010 peak seasons market demand out of Asia.
One Asia-Europe line manager commented: “It is estimated that there is around o five percent shortage of the necessary level of containers needed right now to cope with global demand, and although there are still a couple of months to go before the peak seasons starts, we all need the equipment now, not later.”
Shipper’s problem are quickly becoming a crisis, and are being exacerbated by the liner practice of slow steaming. According to PR News Service ComPort data, around 75 percent of all Asia-Europe, Asia-Mediterranean and Asia-USWC and USEC services employ slow steaming.
Before the 2008/2009 fuel price increases, most Asia-Europe services operated on a 56-day round trip, extended to 63 days to cover North China.
Today, most of the services operate on 77-day or even as much as an 84-day around voyage. Consequently, equipment is tied up for at least another 20 days sea passage, and repatriating empty containers to China has become even more complicated.
Interestingly, fuel prices at the major bunkering ports such as Singapore, have fallen around 10 percent in the last month.
A lack of orders from container leasing companies and the shipping lines during the recession led to the production shutdown at box manufacturing plants.
Ironically. With the unexpected surge in China exports, it is now those leasing companies and shipping lines that stand to benefit from rates hikes.

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